Rich Man, Poor Man

by Krantcents · 44 comments

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Rich man, poor man is not intended to leave out women!  I am really trying to examine the difference between rich and poor and help you achieve what you say is a goal.  Most 18-25 year old say getting rich and becoming famous are important goals for them.  I am not sure if it is limited to just that age group either!  Do you want to know how to get rich?

Invest in Yourself

It takes a long time to acquire skills and experience to become rich.  It may be formal education K-12, college or professional school.  There is no magic formula when it comes to skills, you can acquire them in a variety of ways.  One thing for sure is you need training beyond secondary school.  Your K-12 education is varied enough to develop most people’s skills.  In college, you have an opportunity to spend more time on the area of academics you think will demonstrate your skills.  When you ultimately enter the work world, you grades should indicate your ability to learn in an area you express an interest.

Your next step is to take what you learned and turn it into a profession.  Let’s say you majored in English.  Your skills may be writing or analyzing complex information, but more importantly you construct and defend an argument.  Are these transferable skills?  Most employers want someone who is motivated, intelligent and works hard which describes successful people versus a particular degree.  You won’t get the highest starting salary, but you will move up based on your skills.

A lot of people say you need to pick the right profession!  You know one where you will make a lot of money.  I believe you should pick a profession you like because you will be good at it.  If you are good at it, the money follows.  Teaching for example, is one of the lowest paid professions, but that should not stop you.  There are teachers who do very well, perhaps not millionaires, but that is up to you!  The Millionaire Next Door show that ordinary people who do not look like our image of a millionaire live next door.  One thing they all have in common, they like what they do and are good at it.

How do the rich live?

It starts a long time ago when they were young.  Whether they started out poor or they are just frugal.  They learn to save and live on less then they earn.  If you spend all that you earn, you cannot generate wealth.  Rich people invest their money generally in their business or investments that grow to accumulate wealth.  Rich people think about the future versus spending their money frivolously in the present.  Never mind spending future money in the present.  You won’t see rich people racking up credit card debt and paying 20 something percent.  That does not make sense!

When we see an expensive car or a big house, we presume they are rich.  Most rich people do not live like that.  People like Steve Jobs and Warren Buffet live in nice homes, but comparatively cheap compared to their net worth.  The important factor is they own the home without a mortgage.  Most of the rich people I know live in nice homes and drive nice cars, but not what you would expect.  One of my friends lives in a home worth over a million dollars, but drives a Toyota.  I have known a lot of rich people and you would be surprised how they live.  They are not showy rich!  The jewels are kept in the safe; they drive ordinary cars, in many cases perform ordinary jobs and live in a nice home, but not a mansion.

People who are not rich presume the rich do all the things you see in the movies.  Not everyone is flying in private jets, shop at Tiffany & Co or constantly traveling.  My wife’s uncle lived on Fifth Avenue (NYC).  It was a ten (10) room apartment (condominium) worth tens of millions.  They drove an ordinary car and flew coach.  They were in the fashion business (designer dresses) and knew the likes of Yves Saint Laurent, Givenchy, Dior and Chanel.  They certainly could afford the Concorde or first class travel, but never saw the value.  They invested their money in assets that increased over time such as his business or investments.  Getting rich is hard and you don’t want to waste it.

Whether you just worked hard, started a company, went public or made great investments, success is not easy!  Making it takes time and effort.  You can lose it, if you make poor choices or take your eye off the ball! This is one of the reasons rich people do not change their lifestyle just because you are rich.  Ted Turner (founder of CNN) took over his father’s billboard company and turned it into a billion dollar media company.  Much of his wealth is invested in real estate.  He is the largest private landowner in the United States!  Being rich means you have investments in your company, stock market and real estate.

If you think the rich just accumulate a lot of possessions, you are wrong!  It doesn’t mean they live without, but it generally more ordinary than you would think.  Spending less (significantly less) than you earn is the key to getting rich.  Poor people tend to make bad choices because they want possessions.  I see some of my students waste money on bad food choices when they are hungry, iPods, iPhones, new cars they cannot afford.  The irony is that rich people who can easily afford these possessions, but do not buy it unless they really need it.  They think about their purchases in term of value.

Final thoughts

“The rich are different from you and me.” (F. Scott Fitzgerald) “Yes, they have more money”.  (Hemingway)  This quote was attributed to Fitzgerald and Hemingway although it is a myth, but stays alive because it symbolizes the rich!  The rich are different from the rest of us; they put more of their money to work!  I know an ordinary janitor at school who has a few rental homes.  He started out small by buying a small home in the local area and fixed it up.  He lives very frugally, but is building a real estate empire.  You do not have to be rich to get rich.  What is stopping you?

When I started out, I just invested some of my savings in income property and worked to make it into a business.  My first investment was small (just $25K), reinvesting, acquiring more properties and in seven (7) years, it generated enough income for me to give up my day job.  I lived modestly and still do putting my money to work.  Yes, the rich are different they see money differently!  You are on your way to getting rich, but stay focused on what is important and don’t accumulate possessions.  Rich man, poor man which are you?

Photo by:  puuikibeach

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Rich man, poor man which are you?

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{ 40 comments }

My Financial Independence Journey January 24, 2013 at 2:43 am

I’m definitely working my way towards being wealthy. I’m saving 50% of my income and investing it in stocks that will produce still more income.

Being wealthy is all about savings rate and investments. With a copious amount of hard work, or at least consistent work, thrown in.

I work with a lot of people who make way more money than I do. But they burn tons of money on commuting, car detailing, gourmet kitchen appliances, and super expensive houses (with super expensive property taxes). While I’ll never know, it’s nice to think that my net worth may exceed theirs one day because of my low key lifestyle and aggressive investments.

Krantcents January 24, 2013 at 8:33 am

50% is pretty aggressive and difficult to maintain. When the stock market cycles again and there are losses you may feel like it was not worth it. I keep a low key lifestyle too, but I don’t feel deprived and my savings rate is about 35%.

Greg@ClubThrifty January 24, 2013 at 4:53 am

Perception is definitely not always reality. Most of the time, the rich got rich because they watch what they are spending. I would rather be rich than look rich!

Krantcents January 24, 2013 at 8:40 am

Very true! I used to have all the status symbols (large house, Mercedes, Rolex)! I downsized 15 years ago, replaced the Mercedes with a Honda (now a Toyota) and I still have the Rolex. Net worth is the key in this scenario not possessions.

Money Beagle January 24, 2013 at 6:51 am

Once you get to a net worth over $50,000,000, pretty much any house is going to be a smaller percentage of net worth than the average American, no matter how expensive the home. So I think saying that rich have houses that are worth a smaller portion of their net worth is not saying they have small houses, just that they have a lot of money. That being said, I fully agree that not having a mortgage is key, and I argue it should be a goal of every homeowner, rich or not. I know others disagree, but cash is king, and if you’re making a big payment every month, it’s still standing in your way.

Krantcents January 24, 2013 at 9:01 am

If I were worth a billion dollars, I could have a huge home(s) worth tens of millions with all the expenses (taxes, maintenance,furnishings etc) where a lot of my cash flow would go to maintain my lifestyle. Even rich people can lose control of their expenses. There are homes in Los Angeles that sold for $50 million or more. Taxes alone would exceed $600,000 per year. Those kinds of homes are very expensive to maintain. Most high net worth people have their money working for them. Mit Romney had a $200 million net worth and he only earned $2-3 million a year. Nicholas Cage lost a few houses in the last few years due to overextending himself.

John S @ Frugal Rules January 24, 2013 at 8:53 am

I could not agree more on finding something you love. If you do that, earning should not be an issue. A lot of people get caught up with the feeling of being rich, but in the end it’s just a bunch of stuff that they’re buying that really holds no value over time.

Krantcents January 24, 2013 at 9:22 am

Being rich creates a lot of choices! Even rich people make bad choices and can lose everything. Too many people never give their career/job much thought and take the easy solution.

Brett @ wstreetstocks January 24, 2013 at 11:42 am

Great article. Most non-rich people simply don’t understand that there isn’t a magic formula for becoming rich. Rich people became rich mostly by being proactive. Many middle class simply hope that they will get lucky and become rich.

Krantcents January 24, 2013 at 1:16 pm

Your luck increases when you make an effort! Pro athletes and entertainers who never had money suddenly think the money will last forever. They accumulate a lot of possessions and the money goes quickly. Mostly thanks to bad judgment, financial advice or actions.

Eric J. Nisall - DollarVersity January 24, 2013 at 4:10 pm

A great verification of many of these points is The Millionaire Next Door. It takes a real indepth look at the way real wealthy people live (“real” as opposed to people who make enough money to live lavishly yet have no wealth to show for their work).

Personally, I see examples of the fake-rich all the time when I go go to see my parents. The people across the street from them live in a $450k home with a Mercedes, Range Rover, and at times a Bentley parked in the garage. Yet, when they come out, their clothes look shabby and they keep complaining about collection calls. I wish I could interview and profile them as the prime example of faking rich and the dangers of doing so lol.

Krantcents January 24, 2013 at 4:42 pm

I learned firsthand how rich people lived from friends and family. It may be generational, but I don’t think so.

101 Centavos January 24, 2013 at 4:42 pm

Much like the “millionaires next door”, isn’t it? Building wealth seems to be a series of simple and banal steps, and accumulating real tangible assets.

Krantcents January 24, 2013 at 4:46 pm

It reminds me of the commercial, “we make money the old fashioned way… we earn it!” It is usually a business, investments or just hard work!

101 Centavos January 25, 2013 at 2:31 am

Under-consuming and staying below the radar are good bits of advice. I have older vehicles and a smaller home than some of the people that I supervise.

Krantcents January 25, 2013 at 6:59 am

Staying below the radar is a good way of living!

AverageJoe January 25, 2013 at 5:22 am

I think the education you learn from experiences outside of school are every bit as important as those learned in the classroom. Great stuff. I’ll take rich, please!

Krantcents January 25, 2013 at 7:30 am

I think 50% of your education in college is out of the classroom so life has to be even higher.

eemusings January 25, 2013 at 7:34 pm

Well put. Life skills > theoretical skills any day.

Krantcents January 25, 2013 at 9:04 pm

A college education means you have the intellect to perform. Skills and experience proves you can perform.

Pauline January 25, 2013 at 8:49 am

There is no secret to getting rich, but it also depends on your definition of rich. A paid for house, and enough money to cover bills and occasional treats is a rich life for me. Many wouldn’t be happy until they reach for the mansion and $100K car.

Krantcents January 25, 2013 at 9:23 am

The real definition of rich is different for everyone although there are some common traits. For me, it is all about choices! Having money provides more choices.

Tackling Our Debt January 25, 2013 at 9:24 am

I believe you need to choose a profession that you enjoy but also one that is in high demand. Look at all of the young graduates with huge student loans that are not able to get a job to pay back their loans because there are no jobs that they qualify for based on their degree.

Krantcents January 25, 2013 at 9:32 am

I disagree a little! First and foremost it has to be something you enjoy. If yo are an English major, what can you do? You have to find what transferable skills you have for a job. The bad economy has made it very difficult for inexperienced new grads. This is just a cycle that will change.

Kim@Eyesonthedollar January 25, 2013 at 12:40 pm

I’ll choose rich. I’ve certainly learned that lots of stuff does not make you rich or happy. Working less and finding passive income does.

Teachers certainly don’t make lots of money, but I know couples who are both teachers that have retired in their mid 50′s and have great lives. Maybe their houses are smaller and they don’t wear fancy clothes, but they travel when they want and play golf all summer. Not too bad.

Krantcents January 25, 2013 at 4:42 pm

Quality of life is undervalued! I am glad I made my nest egg before teaching, but the pension is a plus and lifetime medical is worth a lot too.

BARBARA FRIEDBERG January 25, 2013 at 3:00 pm

I really like how you highlighted, don’t accumulate possessions! The more you spend now, the less you have to grow your future wealth.

Krantcents January 25, 2013 at 4:46 pm

Thanks, getting rich is saving and investing! You can’t get rich spending your money!

Elizabeth @ Broke Professionals January 26, 2013 at 4:52 pm

I’m glad you brought up the humble homes of folks like Jobs and Warren Buffet. There is a neighborhood in my area with 25,000 sq. ft. homes, and to me, that is just over the top. NOBODY needs that much room!!!

Krantcents January 26, 2013 at 6:10 pm

A nice home in a good neighborhood does not have to be a mansion. I remember visiting my cousin who had a net worth of millions in the fifties and his home was custom built with just four bedrooms and a lot of special features. It was modest compared to many rich people, but I remember he always said he owned it without a mortgage. It made an impression on me with what was important.

Buck Inspire January 27, 2013 at 12:49 am

Great post KC! The most ironic thing about the rich and poor is the people who can afford it don’t show off or buy depreciating assets. The flip side, the folks who should be watching their dollars blow it on fancy cars and houses they can’t afford. They seem to be compensating for something they lack. Confidence or self-esteem? Seems like the phrase rich get richer applies here. Rich people are rich in confidence and self-esteem, as a result, their bank accounts grow healthily as well as they avoid making bad financial choices.

Krantcents January 27, 2013 at 8:15 am

I see it firsthand in school with students who are poor and have iPods, iPhones, the newest sneakers and their parents have nice cars. When you are poor, you make bad choices to make yourself feel better. Definitely self esteem. Savings and education/training could lift them out of poverty in just a few years.

John@MoneyPrinciple January 27, 2013 at 3:36 pm

It’s the lesson from CashFlow that we have learned and are putting into practice. We are relatively wealthy in net worth terns but it is mainly in non-earning property and pension funds so we are not properly rich – yet. Work in progress.

Krantcents January 27, 2013 at 4:13 pm

In retirement, yo need to convert assets into cash flow. I hope to live off of Social Security and a pension for the basic needs. My portfolio will take care of my wants.

Tony@YouOnlyDoThisOnce January 28, 2013 at 1:32 pm

How true this all is. I thought Millionaire Next Door right away. I love how you summed this all up so nicely!

Krantcents January 28, 2013 at 2:03 pm

Thanks, it actually comes from experience with a lot of people I have known. The book vaidates much of that experience.

LaKeisha Mallett February 4, 2013 at 3:39 pm

Very good article. Often times we allow the media and what we see to influence our financial decisions and those decisions turn into our habits. As you mentioned we need to all make better decisions and develop habits that will cause us to get rich and maintain it.

Krantcents February 4, 2013 at 3:56 pm

As I point out, the rich are not spending all their money, they put it to work.

Cat February 8, 2013 at 11:38 am

I want to be a rich woman, and spend money similarly to how I do now (not much) and get enough money to retire early and “pay” myself a sustainable salary that allows for a bit of fun for my remaining years. :D

Krantcents February 8, 2013 at 12:32 pm

Start with a plan that you can monitor your progress. You may want to check an article I wrote about this approach.

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